FASB Summary of May 12, 2004 Board Meeting Discussion

Derivatives Implementation Group

Financial instruments: derivatives implementation. The Board discussed staff revisions to Implementation Issue No. G25, “Hedging the Variable Interest Payments in a Group of Prime-Rate-Based Interest-Bearing Loans.” The Board did not object the staff’s recommended revisions to permit the use of the first-payments-received technique when the hedged variable interest payments for an interest-bearing financial asset are based on the same rate or index as the underlying for the hedging instrument or on (a) a financial institution’s prime interest rate, (b) the prime rate published in the WSJ, or (c) the interest rate for “bank prime loan” in the Federal Reserve Statistical Release H-15, “Selected Interest Rates,” provided that the underlying for the hedging instrument is also based on one of the aforementioned prime interest rates (even though it is not exactly the same prime interest rate on which the financial asset is based).

Also, the Board unanimously supported recommendations made by Board members to reorganize the format of the Implementation Issue and allow outside review by the Derivatives Implementation Group and other selected constituents before Implementation Issue G25 is finalized.

The Board did not object to the staff’s posting of Implementation Issue G25, as revised consistent with Board member recommendations, on the FASB website as cleared guidance after considering the comments received from the outside review.

Agenda decision: request to amend Statement 133. The Board discussed requests from constituents to add a project to amend FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, to permit the bifurcation of risks for both fair value and cash flow hedge accounting related to nonfinancial assets. The Board unanimously agreed not to add a project to the Board’s technical agenda at this time to amend Statement 133 to permit the bifurcation of risks for both fair value and cash flow hedge accounting related to nonfinancial assets. The majority of Board members also expressed a preference to consider this issue a high priority for the Board to discuss in a future coordinated project.